Frightening FX Losses in Argentina; SNB Might Intervene to Weaken Franc

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The currency situation in Argentina is becoming desperate. In a single three-hour period on Thursday, the Argentine peso shed 19 percent of its value as it slid to 41.47 to the dollar. The peso had already lost 45 percent since January.

With the peso’s spiral downwards, default risk in Argentina moves ever higher, resulting in further selling. In a desperate attempt to shore up the peso, Argentina’s central bank has raised interest rates to a mammoth 60 percent. After a slight recovery into the 38s per dollar by the time of writing, the peso’s year-to-date loss stood at 52 percent; its loss since 2015, now 78 percent.

While things aren’t nearly as wild in Turkey, the lira did post a fourth consecutive day of losses. The lira has lost value every day since markets reopened after last week’s holiday for Eid al-Adha. The lira gave up 3 percent on Thursday (10 percent since Monday) and trades at 6.64 to the dollar.

In other news, negotiators from the US and Canada will meet again on Friday to resume urgent trade talks. Trade developments remain the dominant drivers of USD/CAD which rose on Thursday back into the 1.30s.

The Canadian dollar might be underestimated, ING’s Petra Krpata writes. The market is “underestimating the odds of a 25 basis-point hike at the next [Bank of Canada] meeting,” Krpata believes. Another increase in interest rates later in the year is more or less expected by all, but an increase sooner would undoubtedly support the loonie.

In Europe, market developments are centred around Brexit, with the latest reports indicating that France, like the UK, is now preparing for a “brutal divorce” – an investor unfriendly outcome that would see sterling and the euro fall sharply against the dollar.

Per Citibank, traders should be aware of potential intervention to weaken the Swiss franc. Having benefitted from the volatile situation in emerging markets (the franc is a traditional safe haven), the franc is 4 percent higher since mid-July, at 1.128 to the euro, and with a little more encouragement (beyond 1.124) it will be making one-year highs.

“The Swiss National Bank will not be pleased with the recent rapid depreciation in EUR/CHF. Thus, the possibility of central bank intervention is not ruled out,” a Citi analyst said.


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